CHAPTER 17 TITLE AND RISK OF LOSS DAVIDSON, KNOWLES & FORSYTHE Business Law: Cases and Principles in the Legal Environment (8 th Ed.)

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 2 TITLE TO GOODS UNDER ARTICLE 2 Title refers to legal ownership. When goods are sold, title passes from the seller to the buyer Historic Importance – Under common law, title was of paramount importance. Title refers to legal ownership. When goods are sold, title passes from the seller to the buyer Historic Importance – Under common law, title was of paramount importance.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 3 TITLE TO GOODS Modern Rule. – All rights, duties, and remedies of any party apply without regard to title unless title is specifically required. – Title passes from seller to buyer when seller completes performance of delivery. – Type of delivery contract important in determining which party has title. – Goods identified to contract when shipped, marked, or otherwise designated by the seller. Modern Rule. – All rights, duties, and remedies of any party apply without regard to title unless title is specifically required. – Title passes from seller to buyer when seller completes performance of delivery. – Type of delivery contract important in determining which party has title. – Goods identified to contract when shipped, marked, or otherwise designated by the seller.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 4 SELLERS WITH VOIDABLE TITLE Fraudulent Retention. – Problem arise when seller “sells” goods but retains possession. – Seller’s creditors can treat the sale as void if retention by the seller is fraudulent. – Treat fraudulent retention: Seller is treated as a conclusive presumption of fraud. Seller retains possession of goods for any reason other than a commercial one. Prima Facie, seller is presumed to be guilty of fraud if goods retained. Fraudulent Retention. – Problem arise when seller “sells” goods but retains possession. – Seller’s creditors can treat the sale as void if retention by the seller is fraudulent. – Treat fraudulent retention: Seller is treated as a conclusive presumption of fraud. Seller retains possession of goods for any reason other than a commercial one. Prima Facie, seller is presumed to be guilty of fraud if goods retained.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 5 Entrustment. – Delivery of goods to a merchant who regularly deals in goods of the type delivered. – Addresses problems regarding voidable title and the passage of valid title. Entrustment. – Delivery of goods to a merchant who regularly deals in goods of the type delivered. – Addresses problems regarding voidable title and the passage of valid title. SELLERS WITH VOIDABLE TITLE

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 6 INSURABLE INTEREST Insurable Interest. – The right to purchase insurance on goods to protect one’s property rights and interests in the goods. Insurable Interest. – The right to purchase insurance on goods to protect one’s property rights and interests in the goods.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 7 RISK OF LOSS UNDER ARTICLE 2 Refers to financial responsibility between the parties if the goods are lost, damaged, or destroyed before the buyer accepted them. Refers to relationship between buyer and seller. Allocation of risk of loss depends on method of performance. Refers to financial responsibility between the parties if the goods are lost, damaged, or destroyed before the buyer accepted them. Refers to relationship between buyer and seller. Allocation of risk of loss depends on method of performance.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 8 ROL: BREACH OF CONTRACT Breach of Contract. – Seller breaches contract by sending nonconforming goods. – Seller retains risk of loss until cures the defect or buyer accepts goods despite nonconformity. – Buyer breaches contract by repudiation, after goods are identified but before delivery. Breach of Contract. – Seller breaches contract by sending nonconforming goods. – Seller retains risk of loss until cures the defect or buyer accepts goods despite nonconformity. – Buyer breaches contract by repudiation, after goods are identified but before delivery.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 9 ROL: NO BREACH No Breach of Contract. – Risk of loss is more technical. – Distinct contract possibilities to allocate risk of loss: 1) Seller sends goods by means of a carrier. 2) Goods are in the hands of a bailee and goods not to be physically delivered. 3) Goods in possession of seller and carrier not used. 4) Sale on approval. 5) Parties can agree to allocate risk of loss in any way. No Breach of Contract. – Risk of loss is more technical. – Distinct contract possibilities to allocate risk of loss: 1) Seller sends goods by means of a carrier. 2) Goods are in the hands of a bailee and goods not to be physically delivered. 3) Goods in possession of seller and carrier not used. 4) Sale on approval. 5) Parties can agree to allocate risk of loss in any way.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 10 ROL: NO BREACH Shipment contract: seller provides for carriage of goods and surrenders them to carrier, title and risk of loss belongs to buyer. Destination contract: seller retains title and all risk of loss until carrier delivers goods to buyer and the seller has not performed until goods reach their destination. Shipment contract: seller provides for carriage of goods and surrenders them to carrier, title and risk of loss belongs to buyer. Destination contract: seller retains title and all risk of loss until carrier delivers goods to buyer and the seller has not performed until goods reach their destination.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 11 SPECIAL PROBLEMS Sale on Approval: buyer “purchases” goods primarily for personal use and knows can return goods, buyer given reasonable time to examine, inspect, try goods at seller’s risk. Buyer accepts goods if: – 1) Signifies acceptance. – 2) Does not Return the goods. – 3) Subjects goods to unreasonable usage. Sale on Approval: buyer “purchases” goods primarily for personal use and knows can return goods, buyer given reasonable time to examine, inspect, try goods at seller’s risk. Buyer accepts goods if: – 1) Signifies acceptance. – 2) Does not Return the goods. – 3) Subjects goods to unreasonable usage.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 12 SPECIAL PROBLEMS Sale or Return: goods bought for resale where unsold goods can be returned to seller, both title and risk of loss rest with the goods. Consignment: owner of the goods allows a consignee to display and sell the goods for the owner/consignor. Auctions: with or without reserve. Sale or Return: goods bought for resale where unsold goods can be returned to seller, both title and risk of loss rest with the goods. Consignment: owner of the goods allows a consignee to display and sell the goods for the owner/consignor. Auctions: with or without reserve.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 13 LEASES UNDER ARTICLE 2A Article 2A specifically separates title and possession and states provisions governing leases. Risk of loss in respect to leases depends on type of lease: – Finance lease risk of loss passes to lessee. – Other lease risk of loss is retained by lessor. – Leased goods in hands of bailee and risk of loss is to pass to lessee. Article 2A specifically separates title and possession and states provisions governing leases. Risk of loss in respect to leases depends on type of lease: – Finance lease risk of loss passes to lessee. – Other lease risk of loss is retained by lessor. – Leased goods in hands of bailee and risk of loss is to pass to lessee.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 14 TITLE TO GOODS UNDER CISG CISG governs only the sale of goods. CISG does not concerned with title, but does imply how title should be treated. CISG governs only the sale of goods. CISG does not concerned with title, but does imply how title should be treated.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 15 ROL UNDER CISG ROL under CISG is based on how Seller is to deliver goods. If common carrier depends on carriage contract. – If no destination, ROL passes to buyer when tendered to carrier. – If a destination, ROL passes to buyer at location. ROL under CISG is based on how Seller is to deliver goods. If common carrier depends on carriage contract. – If no destination, ROL passes to buyer when tendered to carrier. – If a destination, ROL passes to buyer at location.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 16 STANDARD SHIPPING TERMS Law presumes shipment contract if not specified in contract. Free On Board (FOB): seller quotes price to buyer, represents total cost to the buyer for goods at place named FOB point. Free Along Side (FAS): standard shipping term for seagoing transportation and buyer is responsible for any costs incurred. Law presumes shipment contract if not specified in contract. Free On Board (FOB): seller quotes price to buyer, represents total cost to the buyer for goods at place named FOB point. Free Along Side (FAS): standard shipping term for seagoing transportation and buyer is responsible for any costs incurred.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 17 STANDARD SHIPPING TERMS Ex-Ship: destination contract, seller responsible for getting goods to named vessel and port and unload them from vessel, seller shoulders the risk of loading, transportation, and unloading. Cost, Insurance, Freight (CIF) and Cost and Freight (C & F): seller quotes a lump-sum price to buyer. Ex-Ship: destination contract, seller responsible for getting goods to named vessel and port and unload them from vessel, seller shoulders the risk of loading, transportation, and unloading. Cost, Insurance, Freight (CIF) and Cost and Freight (C & F): seller quotes a lump-sum price to buyer.

© 2004 West Legal Studies in Business A Division of Thomson Learning BUSINESS LAW: Cases & Principles Davidson Knowles Forsythe 8 th Ed. 18 STANDARD SHIPPING TERMS No Arrival, No Sale: seller faces the risk of loss if goods damaged/destroyed during transit, seller is released from duty to perform. Collect on Deliver (COD): destination contract with special feature; buyer required to pay upon tender by carrier but not permitted to inspect the goods until payment has been made. No Arrival, No Sale: seller faces the risk of loss if goods damaged/destroyed during transit, seller is released from duty to perform. Collect on Deliver (COD): destination contract with special feature; buyer required to pay upon tender by carrier but not permitted to inspect the goods until payment has been made.